Centralisation, visibility and control

British American Tobacco (BAT) wanted to centralise cash management and gain operational efficiency from leveraging its in-house bank set-up and a single SAP instance across all markets within the group, while obtaining greater visibility on its funds. The company also aimed to rationalise the number of accounts and decrease overall banking fees. BAT, in partnership with Zanders and Deutsche Bank, worked together to deliver a true payments and collections on-behalf-of structure in Europe, Singapore and Hong Kong. This involved:

1. Replacing physical bank accounts with virtual accounts.
2. Integrating all bank account information via MT940 reporting into SAP for reconciliation and account posting.
3. Creating a second layer of virtual accounts for each payer to facilitate reconciliation of incoming flows at customer level.

Digitisation during the COVID-19 lockdowns

In Indonesia, cash collections were a challenge due to a combination of reasons, including cash-in-transit risk, disputes in cash counting, and delays in physical deposit of cash from remote locations leading to reconciliation discrepancies and a loss of AR float. The COVID-19 lockdowns exacerbated the situation, delaying collections which further postponed the dispatch of goods to wholesalers and retailers.

BAT and Deutsche Bank discussed the potential to collaborate with fintechs and payment service providers to explore the use of e-wallets which would not only alleviate the immediate problem of cash deposit but would also accelerate the transit to cashless collections.

BAT worked with the bank to develop a cashless collection solution using Indonesia’s nationalised standard QR code (QRIS), leveraging Deutsche Bank’s partnership with its partner bank. The solution allows BAT’s sales representatives to present a QR code to be scanned using mobile banking or e-wallet to make the bank transfer, when delivering the goods to the wholesalers/retailers. Funds are then credited instantly to Deutsche Bank’s nostro account held with the partner bank. The bank also programmed an instant credit notification at transaction level via API to be sent to BAT whenever funds are credited into the nostro account, allowing goods to be released to retailers or credit limits to be released to clear accounts receivables, where applicable.

In Pakistan, BAT had previously been making physical cheque dispatchments to its vendors, which takes up to three working days to be credited into vendors’ accounts. During COVID-19 lockdowns in Pakistan, BAT was physically unable to give these cheques to vendors, therefore BAT worked with Deutsche Bank to utilise the bank’s participation in Pakistan real-time interbank settlement mechanism (PRISM) to pay vendors instead of using physical cheques. BAT managed to convert a majority, almost 95%, of its vendor payments to PRISM and now its vendors enjoy same-day crediting of their accounts from BAT.

Streamlining of local bank accounts and customer receipts

In Korea, BAT has a large wholesaler and retailer base. The collection process for BAT was highly manual with a complicated reconciliation process brought on by:

• Maintaining multiple accounts for the purpose of collections due to the dynamics of the market and customer base.
• Challenges associated with obtaining useable payment references.
• Use of multiple payment methods for customers.
• High volumes of low value receipts due to split payments/instalment receipts.

Liquidity was also scattered across multiple local bank accounts, leading to inefficient utilisation of cash.

BAT was able to leverage Deutsche Bank’s NostroCollect solution to open more than 50,000 customer specific virtual accounts, eliminating the need for physical accounts with local banks, allowing customers to continue paying to their preferred banking partner with minimal cost impact and increasing efficiency from back office through to credit, customer contact, sales order and good dispatch management processes.

Innovation in treasury

BAT’s treasury team is well-known as a leader in innovation and ahead of its time in treasury practices. They constantly strive to achieve greater efficiencies – this is demonstrated by the solutions developed in partnership with Deutsche Bank. Examples include payments-on-behalf-of (POBO) and collections-on-behalf-of (COBO) structures.

The bespoke e-wallet solution in Indonesia demonstrates innovation at its best – it converts a manual-intensive, risk-prone, end-of day-based model into an automated, secure, real-time process.

In Korea, BAT demonstrated best practice by having the foresight to identify growing complexities in a growing market and treated it as an opportunity for transformation and streamlining. Implementing the NostroCollect solution supports BAT’s journey of digitisation of local processes, acceleration of the order to cash cycle, streamlining of accounts and efficient liquidity utilisation.

Key benefits

• Cost savings.
• Headcount savings.
• Number of banking partners/bank accounts reduced.
• Process efficiencies.
• Return on investment (ROI).
• Increased automation.
• Risk mitigated.
• Improved visibility.
• Errors reduced.
• Manual intervention reduced.
• Future proof solution.
• Exceptional implementation (budget/time).
• Quality accreditation achieved.